Indian bonds follow firmness in U.S. Treasuries; 30-year yields hit lowest in 2 weeks

Indian 10-year sovereign bonds gained Tuesday, tracking firmness in the United States Treasuries, while yields on the super-long 30-year bonds hit lowest since January 2, as investors await the United Kingdom’s Prime Minister Theresa May’s speech later in the day for further guidance in the debt market.

The yield on the benchmark 10-year bonds, which moves inversely to its price, plunged 2 basis points to 6.42 percent, the yield on super-long 30-year note fell 1-1/2 basis points to 7.03 percent while the yield on short-term 2-year note skid 1 basis point to 6.32 percent by 08:25 GMT.

Further, UK PM Theresa May's Brexit speech is scheduled to be held on Tuesday by 11:45 GMT. We expect that she will lay out plan to exit the European Union that would see Britain losing access to the bloc's single market.

It is worth noting that the benchmark 10-year yields fell nearly 160 basis points to 6.18 percent in 2016 as subdued inflation and negative impact of demonetisation raised expectations for the RBI rate cut. We at FxWirePro expect this is also likely to continue even in 2017.

In terms of economic data, retail inflation rose 3.41 percent in December from a year earlier, against 3.63 percent in November. India’s wholesale price index inflation accelerated to 3.39 percent in December from 3.15 percent in November, the government data showed. However, food articles inflation for the month was in negative, indicating a 0.7 percent fall in food prices in December as compared to 1.54 percent rise in the previous month.

Meanwhile, the 30-share benchmark Sensex traded 0.24 percent lower at 27,221.57, while the 50-share benchmark Nifty futures traded 0.34 percent or 28.70 points lower at 8,384.65 by 08:30 GMT.